Financial accounting is the area of accounting that focuses on providing external users with useful information. In other words, financial accounting is a way of reporting business activity and financial information to investors, creditors, and other people outside the business organization.
Explanation :
Investors and creditors are often called external users because they are people outside of the organization who use the company financial information to make decisions. The most common form of financial information issued to external users by companies is a general purpose set of financial statements.
In a nutshell :
- Financial Accounting follows either the accrual basis or the cash basis of accounting.
- Nonprofits, corporations, and small businesses use financial accountants.
- Financial reporting occurs through the use of financial statements in five distinct areas.
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